FCC relaxes media ownership rule

Jim PuzzangheraLos Angeles Times Staff Writer

A bitterly divided Federal Communications Commission voted Tuesday to relax one rule banning corporate ownership of a newspaper and broadcast station in the same city and to tighten another to check the growth of big cable television enterprises.

Both votes were 3 to 2, and both new regulations are likely to be challenged in court.

FOR THE RECORD: Media ownership: An article in Wednesday's Business section about new Federal Communications Commission rules for owning a newspaper and broadcast station in the same geographic market said waivers granted for 42 existing cross-ownership combinations removed potential hurdles to sales of those properties. Although the loosening of the rules should make it easier for sales to get FCC approval, the waivers do not automatically transfer to new owners and would be subject to review. —

Kevin J. Martin, the Republican chairman of the FCC, became a lightning rod as he pushed hard for the changes, drawing fire from Democrats who opposed the first change as a cave-in to big business and Republicans who complained that the second was an unwarranted government intrusion into the free market.

"I think there's lots of people that would want me to ride off into the sunset," Martin said after the votes. "I'm planning on staying through President Bush's term."

The cable rule, effective immediately, blocks any one provider from reaching more than 30% of the nation's pay TV market so it won't have enough clout to squeeze out new programming networks. The only cable company close to that level is Comcast Corp., which provides service to about 27% of all cable households.

David L. Cohen, Comcast's executive vice president, criticized the FCC for limiting cable company growth after having given the nod to acquisitions by telephone companies to create behemoths such as AT&T Inc. He said Comcast was "highly confident" the courts would overturn the new rule.

A federal court in 2001 invalidated a similar cap.

Martin said he wanted to recalibrate federal regulations to serve both companies and the public in the fast-changing media marketplace -- and in the case of the newspaper-broadcast rule to halt the decline of the newspaper industry.

The ban on so-called cross-ownership of newspapers and TV and radio stations has been in place for 32 years. The new rule permits cross-ownership with some limits in the nation's 20 largest media markets and allows it in some smaller markets if companies can show they will produce at least seven more hours of local news a week and prove they need to also own newspapers to stay in business.

Martin said that would provide the economic synergies needed to help newspapers deal with the loss of readers and advertisers to the Internet.

"I'm certainly not going to speculate that this alone would save the newspaper industry," he said. "But what I do think is that gathering local news . . . is a high-cost thing to do and to be able to take some of those costs and spread it out over other outlets could be important."

Industry experts said the FCC answer probably wouldn't do the trick.

"Nobody's interested in buying newspapers right now," said Edward Atorino, an industry analyst at Benchmark Co.

Tribune Co., which has struggled financially despite having such combinations in Los Angeles and four other markets, is brandished as an example showing that cross-ownership is no magic bullet for newspapers.

"The company that has probably the most cross-owned stations is Tribune, and they're in such dire straits they had to sell themselves," said FCC Commissioner Jonathan S. Adelstein, a Democrat who voted against the rule change. "This isn't the solution to the problems of the newspaper industry."

Martin pushed his plan in recent weeks despite vocal criticism from Democrats on the FCC and members of both parties in Congress that he was rushing to allow more media consolidation without giving the public enough time to comment on the proposal.

Like a bold banner headline on a routine story, the political battle has served to elevate the significance of cross-ownership for the newspaper industry.

"The politics has made it greater than Wall Street's actual concern" about the rule, said Blair Levin, an analyst at brokerage Stifel, Nicolaus & Co. "Wall Street is skeptical that the synergies that drove some of these transactions really exist."

As proof, Levin noted that shares of media company Belo Corp. shot up in October after it said it was spinning off its newspaper holdings from its broadcast business.

The FCC's action isn't expected to lead to a slew of new mergers, if any. In fact, the rules might end up being invalidated. A bipartisan group of 25 senators has threatened to try to nullify the FCC's change. And expected lawsuits by public interest groups could lead to the new rule being overturned, as happened in 2003 when the FCC proposed eliminating the old rule as part of a broader overhaul of media ownership regulations.

Newspaper executives said the changes were necessary to give their companies more financial options as the media marketplace evolves.

"It was a step in the right direction, but it was still a fairly small step," said John Sturm, president of the Newspaper Assn. of America, which has pushed for years to have the cross-ownership ban eliminated. Broadcasters also pushed for the changes, though not nearly as hard as newspaper companies.

In the end, the most important thing the FCC may have done for newspapers is grant waivers for the 42 existing newspaper-broadcast combinations, relieving them of concerns they one day might have to divest and removing a potential hurdle to sales.

Chicago-based Tribune, owner of The Times and KTLA Channel 5, received waivers last month from the rule to close its $8.2-billion deal to go private. Waiting for FCC approval delayed the deal and had threatened to prevent the company from closing by the end of the year until Tribune and its political allies successfully pushed the FCC to act.

"It's like going to buy a house and the guy's got a broken garage door. It was a negotiating positive for the buyer," Atorino of Benchmark Co. said. "There is no benefit to the newspapers . . . but it does allow newspapers with broadcasting to have a clearer field to sell if they want to."

FCC Commissioner Robert M. McDowell, who voted for the plan, said that newspapers "may disappear someday anyway, regardless of what we do today. But why should stale government industrial policy hasten their demise?"

Opponents of the rule change have charged that the industry remains profitable and that the FCC's Republican majority is only helping newspapers further consolidate to increase profits at the expense of average citizens who will lose independent news outlets.

"In this era of consolidation in so many industries, isn't cutting jobs about the first thing a merged entity almost always does so it can show Wall Street it is really serious about cutting costs and polishing up the next quarterly report?" said Commissioner Michael J. Copps, who voted against the plan. "These job losses are the result of consolidation. And more consolidation will mean more lost jobs."

John Morton, president of Morton Research Inc., a media consulting firm, said newspapers had seen the lessons of cross-ownership and weren't eager to join in.

"Synergy is supposed to mean two plus two equals five, but it often equals three. I suspect you're not going to see a big rush of newspaper companies trying to buy television stations."